Posts Tagged ‘Japan’

Barry Eichengreen is Professor of EconomicThe Wall Street Journalnstitutions at the University of Cambridge; and a former senior policy adviser at the International Monetary Fund. His newest book, Hall of Mirrors:The Great Depression, the Great Recession, and the Uses – and Misuses – of History, was just published by Oxford University Press.

NEW YORK – Economic pundits, almost without exception, are predicting a stronger dollar in 2015 – an expectation that is leading investors to place some very large bets. But that market strategy could turn out to be a very large mistake.

The consensus reflects the fact that the United States is currently the only major economy where growth prospects are improving.Most recently, the US Commerce Department revised upward its estimate of GDP growth for the third quarter of last year, to 5% – the highest rate in 11 years.

Moreover, the revision was based mainly on personal consumption and business investment – the most stable and persistent components of GDP. Consumer sentiment is at its highest level since 2007. Low oil prices, which reduce the cost of gas at the pump, provide an additional boost by giving US households more cash to spend at the mall. The unemployment rate is 5.6% and falling. Den Rest des Beitrags lesen »

It is the time of the year for forecasts; but rather than do an annual forecast, which is as much a guessing game as anything else (and I am bad at guessing games), I’m going to do a five-year forecast to take us to the end of the decade, which I think may be useful for longer-term investors. We will focus on events and trends that I think have a high probability,and I’ll state what I think the probabilities are for my forecasts to actually happen. While I could provide several dozen items, I think there are seven major trends that are going to sweep over the globe and that as an investor you need to have on your radar screen. You will need to approach these trends with caution, but they will also provide significant opportunities.

There is a book in here somewhere, but I do not intend to write one today. In fact, my New Year’s resolution is to write shorter letters in 2015. Over the last decade and a half, the letter has tended to get longer. A little more here, a little more there, and pretty soon it just gets to be a bit too much to read in one sitting. That means I need to either be more concise, break up my topics into two sessions or, if further writing is necessary, post the additional work on the website for those interested.

So I’m writing today’s letter in that spirit. Each of the major topics we’ll be covering will show up in other letters over the next few months. I would appreciate your feedback and any links to articles and/or data points that you think I should know about regarding these topics. Den Rest des Beitrags lesen »

Veronica Roth’s novel offers a useful way of viewing global politics and economics. Let’s hear it for Dauntless America.

In Veronica Roth ’s “Divergent”—a 2011 “young adult” novel set in a dystopian future not a thousand miles removed from “The Hunger Games”—humanity is divided into five factions according to their dominant character traits: Abnegation, Amity, Candor, Dauntless and Erudite. This being a post-apocalyptic Chicago, the last faction turns out to be the bad guys. People who fail the initiation tests are consigned to poverty as “factionless.” People with multiple traits are classified as “divergent” and persecuted.

If you were to sort the world’s countries into five factions, you would need a slightly modified classification scheme. The U.S., its economic recovery firmly established despite learned talk of secular stagnation, is looking Dauntless. Then there are the Erudite little countries, like Estonia and Singapore, that have the rare distinction of intelligent governance. But the other three factions would need different names. Den Rest des Beitrags lesen »

George Soros is Chairman of Soros Fund Management and Chairman of the Open Society Foundations. A pioneer of the hedge-fund industry, he is the author of many books, including The Alchemy of Finance, The New Paradigm for Financial Markets: The Credit Crisis of 2008 and What it Means and The Tragedy of the European Union.

NEW YORK – As 2014 comes to a close, efforts to revive growth in the world’s most influential economies – with the exception of the eurozone – are having a beneficial effect worldwide. All of the looming problems for the global economy are political in character.

After 25 years of stagnation, Japan is attempting to reinvigorate its economy by engaging in quantitative easing on an unprecedented scale. It is a risky experiment: faster growth could drive up interest rates, making debt-servicing costs unsustainable. But Prime Minister Shinzo Abe would rather take that risk than condemn Japan to a slow death. And, judging from the public’s enthusiastic support, so would ordinary Japanese.

By contrast, the European Union is heading toward the type of long-lasting stagnation from which Japan is desperate to escape. The stakes are high: Nation-states can survive a lost decade or more; but the EU, an incomplete association of nation-states, could easily be destroyed by it. Den Rest des Beitrags lesen »

For the first time since records were collected in 1955, Japan’s population is drawing down its savings and the savings rate, calculated as savings divided by disposable income plus pension payments, was negative 1.3%.

It’s a dramatic change from when the Japanese saved nearly a quarter of their income (23.1%) when the savings rate peaked in 1975.

Japan had the highest household saving rate in the OECD in the 1960s until it fell to the lowest. After all, an aging population draws down savings and Japan is the fastest-aging country in the world; its population has been shrinking for a decade. Den Rest des Beitrags lesen »

The world economy in 2015 will carry troubling echoes of the late 1990s

A FINANCIAL crash in Russia; falling oil prices and a strong dollar; a new gold rush in Silicon Valley and a resurgent American economy; weakness in Germany and Japan; tumbling currencies in emerging markets from Brazil to Indonesia; an embattled Democrat in the White House. Is that a forecast of the world in 2015 or a portrait of the late 1990s?

Recent economic history has been so dominated by the credit crunch of 2008-09 that it is easy to forget what happened in the decades before. But looking back 15 years or so is instructive—in terms of both what to do and what to avoid.

Then, as now, the United States was in the vanguard of a disruptive digital revolution. The advent of the internet spawned a burst of innovation and euphoria about America’s prospects. By 1999 GDP was rising by more than 4% a year, almost twice the rich-country average. Unemployment fell to 4%, a 30-year low. Foreign investors piled in, boosting both the dollar and share prices. The S&P 500 index rose to almost 30 times earnings; tech stocks went wild.

The optimism in America stood in stark contrast to gloom elsewhere, as it does today. Japan’s economy had slipped into deflation in 1997. Germany was “the sick man of Europe”, its firms held back by rigid labour markets and other high costs. Emerging markets, having soared ahead, were in crisis: between 1997 and 1999 countries from Thailand to Brazil saw their currencies crash as foreign capital fled and dollar-denominated debts proved unpayable. Den Rest des Beitrags lesen »

Kenneth Rogoff, Professor of Economics and Public Policy at Harvard University and recipient of the 2011 Deutsche Bank Prize in Financial Economics, was the chief economist of the International Monetary Fund from 2001 to 2003. His most recent book, co-authored with Carmen M. Reinhart, is This Time is Different: Eight Centuries of Financial Folly.

CAMBRIDGE – Japanese Prime Minister Shinzo Abe’s recent policy decisions – to increase monetary stimulus dramatically, to postpone a consumption-tax increase, and to call a snap election in mid-December – have returned his country to the forefront of an intense policy debate. The problem is simple: How can aging advanced economies revive growth after a financial crisis? The solution is not.

It is now clear that the first round of Abe’s reforms – known as “Abenomics” – has failed to generate sustained inflation. Hopes for continued recovery have now given way to two consecutive quarters of negative growth. The question is whether Abenomics 2.0 will put Japan’s economy back on the path to renewed prosperity.

My own view is that the “three arrows” of Abenomics 1.0 basically had it right: “whatever it takes” monetary policy to restore inflation, supportive fiscal policy, and structural reforms to boost long-run growth. But, though the central bank, under Governor Haruhiko Kuroda, has been delivering on its side of the bargain, the other two “arrows” of Abenomics have fallen far short. Den Rest des Beitrags lesen »

NOURIEL ROUBINI
Nouriel Roubini, a professor at NYU’s Stern School of Business and Chairman of Roubini Global Economics, was Senior Economist for International Affairs in the White House’s Council of Economic Advisers during the Clinton Administration. He has worked for the International Monetary Fund, the US Federal Reserve, and the World Bank.

NEW YORK – The recent decision by the Bank of Japan to increase the scope of its quantitative easing is a signal that another round of currency wars may be under way.The BOJ’s effort to weaken the yen is a beggar-thy-neighbor approach that is inducing policy reactions throughout Asia and around the world.

Central banks in China, South Korea, Taiwan, Singapore, and Thailand, fearful of losing competitiveness relative to Japan, are easing their own monetary policies – or will soon ease more. The European Central Bank and the central banks of Switzerland, Sweden, Norway, and a few Central European countries are likely to embrace quantitative easing or use other unconventional policies to prevent their currencies from appreciating.

All of this will lead to a strengthening of the US dollar, as growth in the United States is picking up and the Federal Reserve has signaled that it will begin raising interest rates next year. But, if global growth remains weak and the dollar becomes too strong, even the Fed may decide to raise interest rates later and more slowly to avoid excessive dollar appreciation.

The cause of the latest currency turmoil is clear: In an environment of private and public deleveraging from high debts, monetary policy has become the only available tool to boost demand and growth.Fiscal austerity has exacerbated the impact of deleveraging by exerting a direct and indirect drag on growth. Lower public spending reduces aggregate demand, while declining transfers and higher taxes reduce disposable income and thus private consumption. Den Rest des Beitrags lesen »

Author: Dan Steinbock · November 21st, 2014 · RGE EconoMonitor
Japan’s recession is not paving the way for sustained growth. It is prolonging new debt and liquidity and thus deteriorating fiscal discipline.

In the last quarter, Japan’s economy fell into recession. In the West, it was characterized as “unexpected.”

The realities are precisely the reverse. With its third ’lost decade,’ Japan has entered an era of massive monetary expansion that it not adequately supported by the fundamentals of its economy.

Any premature exit from more fiscal stimulus and monetary easing will backfire, as the last two quarters have now demonstrated. So Tokyo will seek to resolve its gigantic debt challenge by taking more debt.

That’s not the solution but part of the problem.

From contraction to recession

In the three months through September, Japan’s GDP contracted by an annualized 1.6 percent, as a result of the sales tax hike in April.

Consumption accounts for some 60 percent of the Japanese economy, but remains fragile. When household assets rose to a record in late June, Prime Minister Shinzo Abe’s Liberal Democratic Party (LDP) saw it as a sign of success. In reality, the 3 percent tax hike and the Bank of Japan’s (BOJ) historical easing have boosted living costs faster than incomes.

Companies are reluctant to invest, even as major firms enjoy record profits. A year ago, there was much talk about “Japan is back.” But even though the yen has slid 13 percent against dollar, exports added only 0.1 percent to GDP. Instead, the GDP is driven by unsustainable government spending. Den Rest des Beitrags lesen »